The business behind the show

No more skipping ads? Networks will look to video-on-demand to replace DVRs

October 11, 2010 | 1:30
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With penetration at almost 40%, the digital video recorder is starting to change the way people watch television and, more important, don't watch advertising.

For the television industry, TiVos and DVRs are a mixed blessing. On the one hand, the devices allow viewers to catch shows they might have otherwise missed. On the other hand, often when viewers use the machines to watch shows, they skip over commercials, much to the chagrin of the advertisers, which pay big bucks for those spots, and the networks, which need the money to make shows.

The networks are wary of this and ultimately are looking to video-on-demand to replace the DVR. In other words, picture a day when instead of recording that episode of "Two and a Half Men" on your DVR, you order it on video-on-demand. The only difference would be that on VOD the ads would be there and you wouldn't be able to skip them.

"I call DVRs a transitional technology," said David Poltrack, the chief research officer of CBS. In an interview, Poltrack said the DVR will be supplanted by streaming and VOD that will "give the consumer the ability to watch shows any way they want to and to do so in a way that is much more advertiser-friendly."

Will the consumer feel that way? Poltrack notes that as VOD becomes more widespread, it could allow cable subscribers to drop their DVRs and knock $10 bucks or so a month off their cable bills. He said CBS has done research that showed 90% of the several thousand people the network surveyed would accept watching commercials in return for not shelling out money for a DVR. Of course, some people might be willing to shell out the $10 a month to not watch commercials.

What about the cable and satellite companies that make money off of DVR subscribers? It would seem natural for them to be resistant to this. Poltrack said the bigger VOD becomes, the easier it will be for distributors to sell high-end digital cable packages as well as possibly sell advertising in or around video-on-demand offerings.

Those who would prefer to keep their DVRs won't escape ads either. Sooner or later the distributors will just make it impossible to skip commercials on shows recorded with DVRs.